This “Dean" has never actually been a dean of anything, but I have been an independent college counselor and was in similar situations myself many times. Although I would never insist that an advisee NOT apply to a “dream college," I often told students (or their parents) that I viewed a number-one choice as not just a “Reach" but an “Out-of-Reach."
It can be hard for parents in particular to understand just how cutthroat the admissions process can be, especially at that short list of sought-after, hyper-selective schools with acceptance rates in the single digits. But I do understand how, as parents, we take great pride in our progeny's achievements and are often awed by their persistence and success. Once, in fact, when I sat on an admissions panel, a mother in the audience asked me to name the biggest mistake that parents make during the application process, and I replied, “It's probably that they love their children too much, which is certainly not really a 'mistake' in my book." Yet, indeed, it is difficult to recognize just who else is “out there" when a son or daughter seems to do so much so well.
Back in my indie counselor incarnation, if a family had wanted to pay me to help with an application to only an Out-of-Reach school, then I, too, would have refused to take the money. So I believe that the decision made by your counselor is highly ethical, and I applaud her for it. But, when I worked directly with students, I never assisted with an application to just a single school. Typically, clients bought a “package" that included my recommendations of “Reach," “Realistic" and “Safe" options, and guidance on up to ten applications. If a student was aiming for a place that I insisted was an impossible dream, I was always able to help him or her create a list of additional schools that balanced admissions risk. Sometimes, as the weeks went by and my students further researched the colleges and universities I'd suggested, they would realize the futility of their initial goal and would instead start to get excited about more sensible selections.
Thus, perhaps you should discuss with your counselor the possibility that -- despite her reservations -- she will work with your son on a Yale application to ensure that he selects a good essay topic, writes a memorable essay, highlights his achievements appropriately on application activity lists, meets deadlines, etc. But — at the same time — she will help him use the materials he prepares for Yale to apply to additional colleges, including those that she recommends for him.
Certainly she must have a fee that covers bids to multiple schools. It seems unusual to me that a counselor would focus on an application to just one Ivy League institution, whether this aim is realistic or not. However, I do think that you've found an ethical advisor, and your next step should be to design a plan with her that all of you can accept.
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